January 2024 Newsletter

If you have assets located outside of Canada, make sure to check whether you are required to declare these, as the deadline for 2023 is the same as that for your tax return. Penalties can be very significant if you are required to declare these and you don’t.

The basic rule is that Canadian residents who at any time in 2023 owned “specified foreign property” with a total cost of more than $100,000 (CAD), must file a form (T1135) to report the existence of these assets, as well as any income or gains arising in the year from them.

If the total cost of the reportable assets is $250,000 or more, more detailed information is required.

Specified foreign property includes assets such as cash in foreign bank accounts, shares of foreign companies (even if held with a Canadian broker), and overseas properties that are not held for personal use (for example, a Florida condo used just for vacations and not rented out is excluded).

In addition to personal-use property, there are various other assets that are exempt form this filing requirement such as certain registered retirement accounts (e.g., 401(k) and IRA accounts), and property used in an active business.

This filing requirement can be easily overlooked, and the penalties can be significant. The minimum penalty for late filing is $100 but accumulates at a rate of $25 per day, up to a maximum of $2,500 after 100 days (i.e., by August 7). If the failure to file is intentional or due to “gross negligence”, the penalties are much higher, and can be 5% of the cost of the foreign assets that should have been disclosed.

Note that this is purely a filing obligation, and that no additional tax is due as a result. Nevertheless, the potential penalties can make any oversight in respect of this form very costly. (All penalties are non‑deductible for tax purposes.)

If you have overlooked filing this return for previous years, relief from penalties and interest may be available under the Voluntary Disclosures Program (VDP), if the CRA is not already aware that you should have filed, has not initiated audit action, and if you report the oversight voluntarily.

If CRA has already told you that you should have filed this for a prior year, or if CRA has already received information about your foreign assets from other countries, the VDP may not be available. In limited cases, relief may be available under the Taxpayer Relief provisions. These were discussed in our October 2023 Tax Letter.

Last modified on January 9, 2024 12:00 am
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